How much term insurance cover do I actually need?
Build the figure from obligations rather than a multiple of income: annual income replacement multiplied by the years until your youngest dependant is independent, plus every outstanding liability and known future cost, minus liquid assets and any cover you already hold. The multiple-of-income rule is a sanity check on that number, not a substitute for it.
Key takeaways
- Ten to fifteen times income ignores your debts, your dependants' ages and your existing assets.
- Add income replacement, liabilities and known future costs; subtract accessible savings and existing cover.
- Employer group cover disappears with the job, so do not treat it as permanent.
- Term premiums lock to your age and health at purchase, so waiting has a permanent cost.
Why the multiple-of-income rule falls short
The standard advice — buy ten to fifteen times your annual income — is a useful sanity check and a poor calculation. It ignores your debts, your dependants' ages, and the assets you already hold.
Build the number from obligations instead
Build it from the obligations instead. Start with income replacement: the annual amount your family needs, multiplied by the years until your youngest dependant is financially independent. Add every outstanding liability, home loan first, because a family forced to sell the house has not been protected. Add specific known future costs, such as education.
Then subtract what already exists
Then subtract what already exists: liquid savings and investments your family could actually access, plus any life cover you already hold, including employer group cover — while remembering that employer cover disappears with the job.
The requirement is a curve, not a constant
The number that falls out is usually larger than the rule of thumb suggests for a young earner with a mortgage and small children, and smaller for someone in their fifties with grown children and a paid-off home. That is the point: the requirement is a curve over your life, not a constant.
Why waiting costs more than it looks
One structural note. Because term premiums are set by your age and health at purchase and stay level for the term, the cost of waiting is permanent. Buying the cover you will need at 40 when you are 30 is usually cheaper than buying it at 40 — and you are certain to be insurable today in a way you cannot be certain of later.
This guide is general information, not advice on your particular circumstances. Cover, exclusions and waiting periods are governed solely by the policy document issued by the insurer. Please read the policy wording before you buy.